A Little Firmer In Asia, Belly Leads Bid

TYU2 deals +0-10+ at 120-14+, 0-01+ off the peak of its 0-13+ range, operating on above average volume of ~140K. Cash Tsys run 2-5bp richer across the curve, with the belly outperforming.

• Asia-Pac trade saw Tsys fade away from Tuesday’s cheapest levels. As a reminder, yesterday’s cheapening came about as some of the more dovish (at least in a historical context) regional Fed Presidents pushed back on the idea that the Fed was nearing a pivot, stressing its commitment to combatting inflation. St. Louis Fed President also chimed in during overnight dealing, Bullard continued to attempt to playdown any recession-related worry, while flagging a more data-dependent round of tightening going forwards, in addition to reiterating his view that the Fed Funds target should be at 3.75-4.00% by year-end.
• The continued verbal jousting re: the Taiwan situation played into the bid. China vowed to enact criminal punishment against “Taiwan-independence diehards” via the major state-run media outlet, Xinhua, while it also levied trade bans on certain Taiwanese goods. Elsewhere, Chinese Foreign Minister Wang Yi has urged the U.S. to stop playing the Taiwan card. Ultimately, the focus of any Chinese reaction to U.S. House Speak Pelosi’s trip to Taiwan remains Taiwan-centric for now, avoiding the worst case scenario for markets (e-minis are a touch above settlement levels).
• A joint press conference between the Taiwanese President Tsai & U.S. House Speaker Pelosi generated the sort of language you would expect i.e. Taiwan noting that won’t back down to China, while it looks to develop its relationship with the U.S. & Pelosi being supportive of Taiwan, flagging the potential for some form of fairly imminent trade agreement between the two countries.
• On the flow side, 2x block buys in TY futures supported the space during the first half of Asia dealing (a cumulative ~$873K in DV01 terms).
• NY hours will see the release of the ISM services survey, final S&P services PMI, factory orders, final durable goods data and weekly MBA mortgage apps. We will also get the quarterly refunding announcement from the Treasury and a raft of Fedspeak (Barkin, Bullard, Harker & Kashkari).